Kopin(KOPN) - 2018 Q4 - Annual Report

PART I Business Kopin Corporation specializes in AR/VR, military, and industrial components and systems, leveraging proprietary miniature displays and extensive IP Introduction Kopin Corporation, founded in 1984, develops and sells components and systems for AR/VR, military, and industrial markets - Kopin Corporation, incorporated in Delaware in 1984, is a leading inventor, developer, manufacturer, and seller of components and systems for AR/VR wearable headsets, military applications, 3D optical inspection systems, and training & simulation markets[14] - Product offerings include proprietary miniature active-matrix liquid crystal displays (AMLCD), liquid crystal on silicon (LCOS) displays, organic light emitting diode (OLED) displays, application specific integrated circuits (ASICs), backlights, optical lenses, and audio integrated circuits (Whisper® Chip)[15][16] - Components are sold separately or in various levels of integration, including display modules, binocular display modules, and higher-level assemblies for military applications[17] - Kopin offers systems focused on emerging enterprise and consumer markets, such as SOLOS® smart glasses for health and fitness, and NVIS virtual reality products for military and industrial training[18][19][20] Industry Overview The wearable products market is evolving, driven by technological advancements in components and connectivity - The wearable products market is emerging, driven by advancements in smartphone technology, smaller electronic components, voice search engines, wireless 4G networks, and cloud computing[24] - Future device improvements for wearables include smaller, higher-resolution displays, lower power processors, longer-life batteries, compact optics, and advanced software like voice recognition and noise cancellation[25] Our Solution Kopin provides a range of wearable technology solutions, including components and proprietary headset systems Kopin Wearable Technology Kopin offers both component technologies and proprietary headset systems for wearable applications - Kopin Wearable technology includes both component technologies for customer headset systems and proprietary headset systems[26] - Components offered include displays, backlights, ASICs, optical lenses, and the Whisper Chip audio IC[26] - Proprietary headset systems include SOLOS smart glasses for health and fitness, Golden-i™ Infinity for the enterprise market, and a visor for training and simulation[26] Display Products Kopin offers transmissive, reflective, and emissive microdisplay technologies with high resolution and low latency - Kopin offers transmissive (CyberDisplay® AMLCDs), reflective (FLCOS), and emissive (Lightning™ OLEDs) microdisplay technologies, with resolutions ranging from 320x240 to 2048x2048[28][31][34][36] - Lightning OLED microdisplays address virtual reality challenges with high resolution (2Kx2K), small size (1-inch diagonal), near-zero latency (10 microseconds), 120-Hz frame rate, and low power consumption[36] - Transmissive and reflective AMLCDs are suited for bright light conditions, while OLEDs offer superior contrast and response time for immersive, ambient light-blocked environments[37] Optical Lenses and Backlights Kopin provides various optical lenses and backlights, manufactured by third parties, for design flexibility - Kopin offers a variety of internally developed and licensed optical lenses (Pupil, Pearl, Prism, Pantile, Pancake) and backlights, manufactured by third parties[38] - Different lens sizes provide design flexibility, allowing for fashionable consumer products (smaller lenses) or broader views for enterprise applications (larger lenses)[38] Whisper Chip The Whisper Chip is an audio IC designed to enhance speech recognition in noisy environments with low power - The Whisper Chip is an audio IC designed to enhance speech recognition performance in noisy environments using patented Voice Extraction™ Filter (VEF) technology[39] - It is an all-digital solution, operates at 16MHz, consumes less than 12mW of power, is 4x4 mm in size, and accepts up to four digital microphone inputs[39] Headset Systems Kopin's headset systems offer AR/VR solutions for health, fitness, enterprise, and training with hands-free operation - Kopin's headset systems include SOLOS smart glasses (AR for health/fitness), Golden-i (complete head-worn computer), Golden-i™ Infinity (safety glasses attachment, voice-operated), and training/simulation head-mounted displays[43] - These systems connect wirelessly (WiFi, Bluetooth, ANT+) or via wire to smartphones, leveraging specialized optics for information display and hands-free operation[41] - Commercial user benefits include access to cloud-based work instructions, video streaming to 'Remote Experts,' and hands-free operation through voice control[44] Strategy Kopin's strategy involves component sales, system design licensing, branded products, and military collaborations, leveraging IP and R&D - Commercial strategy: invent, develop, manufacture, and sell leading-edge components; license wearable headset computing system designs to OEMs; and offer branded SOLOS smart glasses and Golden-i headsets[42] - Military strategy: collaborate with the U.S. military to develop products for future program needs[42] - Critical elements include leveraging a broad intellectual property portfolio (approx. 300 patents/applications), maintaining technological leadership through R&D, understanding customer needs, utilizing third-party manufacturing, and securing U.S. government program support[45][52] Markets and Customers Revenue is generated from component sales, system design licensing, and direct product sales to consumer, industrial, and military customers - Revenue is generated from selling components to consumer, industrial, and military customers, licensing system designs, and direct sales of SOLOS smart glasses and Golden-i systems[47] Revenue Breakdown by Customer Type (as % of Total Revenue) | Category | 2018 | 2017 | 2016 | | :--------------------------------- | :----: | :----: | :----: | | Military Customers in Total (excl. R&D) | 36% | 48% | 24% | | Funded Research and Development Contracts | 20% | 11% | 7% | - Key customers for AMLCD products include Collins Aerospace, Elbit, Raytheon, DRS RSTA, BAE Systems, ITT (military); Google, Vuzix, RealWear (enterprise); and Scott Safety (public safety)[49] Product Development Product development focuses on enhancing display resolution, improving headset optics, and engaging in funded R&D contracts Component Products Component development focuses on improving display resolution, performance, and manufacturability for microdisplays - Display product development focuses on enhancing resolution, performance, and manufacturability, particularly for very small active matrix pixels on 8-inch manufacturing lines[53] - Current pixel sizes range from 6.8 to 15 microns for transmissive, 8.2 to 13.6 microns for reflective, and 8.6 microns for OLED displays, with resolutions up to 2048x2048[53] - Optical lenses, backlights, and ASICs are manufactured to Kopin's specifications by third parties[54] Headset System Design Products Headset system development aims to improve display optics, reduce size and power, and enhance overall fit and style - Headset system development efforts are primarily focused on improving display pod optics, reducing unit size and power consumption, and enhancing overall fit and style[55] Funded Research and Development Kopin engages in funded R&D contracts with government and commercial entities to advance core technology - Kopin engages in development contracts with U.S. government agencies and commercial customers to support core technology development[56] Funded R&D Revenues (in millions) | Fiscal Year | Revenue (in millions) | | :---------- | :--------------------: | | 2018 | $5.3 | | 2017 | $2.9 | | 2016 | $1.5 | - While Kopin aims to retain proprietary rights, U.S. federal agencies funding development may obtain non-exclusive, non-transferable, irrevocable, fully paid licenses for governmental use[56] Competition Kopin faces intense competition in commercial display and headset markets from larger global electronics companies - The commercial display market is highly competitive, dominated by large Asian electronics companies (e.g., AUO, BOE, Himax, LG, Samsung, Sharp, Seiko, Sony), with competition based on price, performance, quality, size, and timely delivery[57] - Kopin's microdisplays compete with other display technologies like plasma, OLED, micro LEDs, and virtual retinal displays[58] - Headset systems compete with products from substantially larger companies such as Panasonic, Garmin, Toshiba, Dell, HTC, Hewlett Packard, Apple, Sony, and Samsung[61] Patents, Proprietary Rights and Licenses Kopin actively protects its intellectual property through patents and licenses, owning approximately 300 worldwide - Kopin actively seeks patent protection for its products and proprietary technology in the U.S. and internationally, aiming to aggressively prosecute and defend its IP[62] - The company owns, exclusively licenses, or has exclusive sublicensing rights to approximately 300 patents and patent applications worldwide[45] Government Regulations Kopin is subject to environmental, export control (ITAR), and import regulations, with non-compliance posing significant risks - Kopin is subject to federal, state, and local environmental regulations regarding hazardous chemicals, federal International Traffic in Arms Regulations (ITAR) for export control, and federal importation laws for raw materials[63][64][65] - Non-compliance with these regulations could result in fines, production suspension, cessation of operations, and significant future liabilities[63][64][65] Investments in Related Businesses Kopin strategically invests in and acquires companies like NVIS and FDD to enhance its wearable computing market offerings - Kopin acquired 100% of NVIS (virtual reality systems) in March 2017 for $3.7 million, with potential additional payments up to $2.0 million based on performance milestones[66] - The company owns 100% of Forth Dimension Displays Ltd. (FDD) and Kopin Software Ltd., and 80% of e-MDT America, consolidating their financial results[67][68] - As of December 29, 2018, Kopin held a 12.5% equity interest in another company, with a carrying value of $3.9 million[68] - These investments are part of Kopin's strategy to enhance its product offering in the wearable computing market, but carry risks of no financial return or negative impact on operating results[70] Employees As of December 2018, Kopin employed 180 individuals globally, including 9 Ph.D. holders, without collective bargaining agreements - As of December 29, 2018, Kopin's consolidated business employed 180 individuals, including 9 Ph.D. holders in Material Science, Electrical Engineering, or Physics[71] - Employees are located in the U.S., Europe, and Asia, and none are covered by a collective bargaining agreement[71] Sources and Availability of Raw Materials and Components Kopin relies on a limited number of third-party suppliers for critical components, increasing supply chain dependency and risk - Kopin relies heavily on a select number of third-party contractors and suppliers for critical raw materials (e.g., integrated circuit chip sets, special glasses, wafers, chemicals, lenses, backlights, printed circuit boards)[72] - The low volume of military purchases limits the ability to qualify and buy components economically from multiple vendors, increasing dependency on single sources[72] - The company is subject to SEC rules under the Dodd-Frank Act requiring due diligence and disclosure on conflict minerals from the Democratic Republic of the Congo (DRC) and adjoining countries[73] Web Availability Kopin provides its SEC filings and corporate governance documents free on its website, www.kopin.com - Kopin makes its Annual Reports on Form 10-K, other SEC filings, and corporate governance policies (e.g., Code of Ethics, committee charters) available free of charge on its website, www.kopin.com[74](index=74&type=chunk) Risk Factors Kopin faces substantial risks including ongoing losses, market uncertainty, supply chain dependencies, intense competition, and regulatory compliance challenges - Kopin has a history of losses, a significant accumulated deficit ($272.9 million as of Dec 29, 2018), and negative cash flow from operating activities ($28.2 million in 2018), raising substantial doubt about its ability to continue as a going concern[75][76] - The market for wearable products may take longer to develop or may not develop as anticipated, impacting Kopin's ability to grow revenues and achieve profitability[77][80] - Sales of display products for military applications could significantly decline due to program cancellations, qualification failures, or competition, negatively affecting revenues and cash flows[81] - Reliance on third-party foundries (Taiwanese, Chinese for OLED) and suppliers for integrated circuits and critical raw materials poses risks of production disruption, capacity limitations, and quality control issues[84][85][86][87] - The company operates in highly competitive and rapidly changing markets, facing larger competitors with greater resources, requiring continuous product enhancement and timely introduction of new technologies[88][89] - Risks related to intellectual property include the time and expense of patent protection, potential infringement claims, and challenges in enforcing rights in foreign countries[97][98][99][100][101][102] - U.S. government contracts are subject to termination, modification, and complex procurement laws, which could lead to loss of business, penalties, or sanctions[104][105][106][107][110][111][112][113] - Changes in tax laws (e.g., 2017 Tax Act), trade policies (e.g., U.S.-China tariffs), and geopolitical uncertainty (e.g., Brexit) could materially and adversely affect Kopin's financial results[117][118][119][128][129][130] Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments[131] Properties Kopin leases its main production facility in Westborough, MA, along with other offices and subsidiary facilities globally - Primary production facility: 74,000 sq ft in Westborough, MA, with 10,000 sq ft of Class 10 to Class 1,000 clean rooms[132] - Wearable computing Tech center and ASIC development: 10,000 sq ft in San Jose, CA[132] - International offices: Leases in Hong Kong, Shenzhen, China, and Tokyo, Japan[132] - Subsidiary facilities: NVIS leases 6,100 sq ft in Reston, VA; FDD leases 20,000 sq ft in Dalgety Bay, Scotland, U.K., including 5,000 sq ft of Class 10 to Class 10,000 clean rooms[133] Legal Proceedings Kopin is a defendant in an ongoing legal dispute with BlueRadios, Inc. concerning contract breach and trade secret misappropriation - Kopin is a defendant in an ongoing legal proceeding, BlueRadios, Inc. v. Kopin Corporation (Civil Action No. 16-02052-JLK, D. Col.), filed August 12, 2016[134][135] - BlueRadios alleges breach of contract, breach of good faith and fair dealing, breach of fiduciary duty, and misappropriation of trade secrets concerning a joint venture for "Golden-i" microdisplay products[135] - BlueRadios seeks monetary, declaratory, and injunctive relief, including correction of inventorship on at least ten patents[135] - Discovery is ongoing, and a trial date has not been set. Kopin has not concluded a loss is probable and has not recorded an accrual for litigation[136] Mine Safety Disclosures This item is not applicable to Kopin Corporation - Not applicable[137] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Kopin's common stock trades on Nasdaq, with no anticipated cash dividends, and shares available for equity compensation plans - Kopin's common stock is traded on the Nasdaq Global Market under the symbol "KOPN"[140] - As of March 8, 2019, there were approximately 398 stockholders of record[140] - The company has no present intention to pay cash dividends for the foreseeable future, retaining earnings for business development[141][125] Equity Compensation Plan Information (as of December 29, 2018) | Plan Category | Number of securities remaining available for future issuance | | :------------------------------------ | :---------------------------------------------------: | | Equity compensation plans approved by security holders | 1,699,737 | Selected Financial Data Selected consolidated financial data from 2014-2018 highlights consistent net losses and negative cash flows, with 2018 data impacted by Topic 606 adoption Selected Financial Data (in thousands, except per share data) | Metric | 2018 | 2017 | 2016 | 2015 | 2014 | | :------------------------------------------ | :------: | :------: | :------: | :------: | :------: | | Statement of Operations Data: | | | | | | | Total revenues | $24,465 | $27,841 | $22,643 | $32,054 | $31,808 | | Loss from operations | $(39,967) | $(30,298) | $(20,473) | $(25,237) | $(28,429) | | Net loss | $(35,819) | $(25,380) | $(23,031) | $(14,843) | $(28,671) | | Net loss attributable to controlling interest | $(35,870) | $(25,240) | $(23,434) | $(14,693) | $(28,212) | | Basic and diluted loss per share | $(0.49) | $(0.36) | $(0.37) | $(0.23) | $(0.45) | | Weighted average basic and diluted common shares outstanding | 73,157 | 69,915 | 64,046 | 63,466 | 62,639 | | Balance Sheet Data: | | | | | | | Cash and cash equivalents and marketable debt securities | $37,244 | $68,756 | $77,198 | $80,711 | $90,859 | | Working capital | $39,037 | $67,636 | $70,028 | $89,879 | $86,682 | | Total assets | $59,549 | $91,322 | $87,832 | $106,060 | $122,941 | | Total stockholders' equity | $47,862 | $78,099 | $74,078 | $94,741 | $109,847 | - The adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), in fiscal year 2018 on a modified retrospective basis means that Total revenues, Loss from operations, and Total stockholders' equity for 2018 may not be directly comparable to prior years[148] Management's Discussion and Analysis of Financial Condition and Results of Operations MD&A details Kopin's financial performance, ongoing losses, and liquidity concerns, impacted by Topic 606 adoption and significant R&D investments Overview This overview discusses Kopin's financial statements, which require estimates, and the impact of Topic 606 adoption - Management's discussion and analysis are based on audited consolidated financial statements, requiring estimates and judgments[151] - Kopin adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), effective December 31, 2017, using the modified retrospective method, making 2018 results not directly comparable to prior periods[152] Critical Accounting Policies Critical accounting policies cover revenue recognition, inventory valuation, investment valuation, income taxes, and goodwill impairment Revenue Recognition Revenue is recognized from component sales and development contracts, either over time for government contracts or at a point in time for commercial sales - Revenue is primarily derived from component sales for military and wearable technology applications, and development contracts[153][279] - For U.S. government contracts, revenue is recognized over time using the cost-to-cost approach due to continuous control transfer and lack of alternative product use[158][159][285][286] - For commercial customers, revenue is recognized at a point in time, generally upon delivery of products or services[158][285][289] - The adoption of Topic 606 in 2018 resulted in approximately $4.1 million in revenue being recognized as a cumulative effect adjustment to opening retained earnings, rather than in 2018 and future years[183] - As of December 29, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was $8.0 million, expected to be recognized over the next 12 months[294] Inventory Inventories are valued at the lower of cost or net realizable value, with reserves for obsolete items - Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value[164][303] - A reserve is provided for estimated obsolete or unmarketable inventory based on assumptions about future demand and market conditions[164][303] Inventory Composition (in thousands) | Category | 2018 | 2017 | | :-------------- | :------: | :------: | | Raw materials | $2,548 | $2,070 | | Work-in-process | $1,527 | $1,830 | | Finished goods | $723 | $1,181 | | Total | $4,797 | $5,081 | Investment Valuation Equity investments in private companies are revalued upon observable price changes or impairment, considering various performance factors - Kopin makes equity investments in private companies, whose values are difficult to determine[165][322] - The company adopted ASU No. 2016-01 (effective Dec 31, 2017) for equity investments without readily determinable fair values, revaluing them upon observable price changes or impairment[165][322] - Impairment assessments consider factors such as the investee's share price from the latest financing, operating performance, revenue and cost trends, liquidity, cash burn rate, and market acceptance[165][322] Income Taxes Income tax policies address deferred tax assets, valuation allowances, and the impact of the 2017 Tax Act on corporate rates - Kopin has historically incurred domestic operating losses and establishes valuation allowances against deferred tax assets if their realization is not probable[167][168][313][379][385] - The 2017 Tax Cuts and Jobs Act reduced the U.S. corporate statutory federal tax rate to 21% effective in 2018, impacting deferred tax balances[169][380] - Kopin finalized its provisional estimates for the remeasurement of U.S. deferred tax balances in 2018, resulting in approximately $25.1 million of tax expense[170][381] - The company expects to receive a $1.0 million refund from its AMT credit in accordance with the Tax Act[382] Goodwill Goodwill is tested annually for impairment at the reporting unit level, based on significant estimates and assumptions - Goodwill is carried at cost, not amortized, and is subject to annual impairment tests or more frequent tests if indicators of potential impairment are present[171][332] - Impairment tests are performed at the reporting unit level, relying on significant estimates and assumptions regarding macroeconomic conditions, growth rates, competitive activities, business plans, and discount rates[172][333] - In fiscal year 2018, Kopin recognized a $1.4 million goodwill impairment charge related to its NVIS and Kopin Software Ltd. reporting units[198][351] Results of Operations This section analyzes Kopin's revenues, cost of product revenues, R&D, SG&A, and impairment charges for recent fiscal years Revenues Total revenues decreased in 2018, with military sales declining and industrial and R&D revenues increasing Total Revenues by Display Application (in thousands) | Category | 2018 | 2017 | 2016 | | :-------------------- | :------: | :------: | :------: | | Military | $8,724 | $13,438 | $5,338 | | Industrial | $6,066 | $5,478 | $6,296 | | Consumer | $4,146 | $4,406 | $7,418 | | Research and Development | $5,254 | $2,947 | $1,527 | | Other | $275 | $1,573 | $2,064 | | Total Revenues | $24,465 | $27,841 | $22,643 | - In 2018, military application revenues decreased primarily due to the completion of military programs at the NVIS subsidiary[180] - Industrial application revenues increased in 2018 due to higher sales of display components for industrial headsets[181] - Consumer application revenues decreased in 2018 due to reduced demand for displays and components used in thermal imaging products and drone racing headsets[182] - Research & Development revenues increased in 2018, primarily due to funding for U.S. military programs[182] - International sales represented approximately 41% of product revenues for both 2018 and 2017[185] Cost of Product Revenues Cost of product revenues as a percentage of net product revenues increased in 2018 due to lower-margin military sales Cost of Product Revenues (in thousands) | Fiscal Year | Cost of Product Revenues | % of Net Product Revenues | | :---------- | :----------------------: | :------------------------: | | 2018 | $15,831 | 82.4% | | 2017 | $18,118 | 72.8% | | 2016 | $17,814 | 84.4% | - Cost of product revenues as a percentage of net product revenues increased in 2018 compared to 2017, primarily due to a decline in sales of higher-gross-margin military products[190] Research and Development Funded R&D increased due to military programs, while internal R&D decreased as products moved to commercialization R&D Expenses (in thousands) | Category | 2018 | 2017 | 2016 | | :-------- | :------: | :------: | :------: | | Funded | $4,892 | $3,365 | $787 | | Internal | $12,553 | $15,415 | $15,253 | | Total | $17,445 | $18,780 | $16,040 | - Funded R&D expense increased in 2018 due to increased spending for military programs, while internal R&D expense decreased as products moved into the commercialization phase[193] - Kopin expects to incur significant development costs in fiscal year 2019 for display products and military products[193] Selling, General and Administrative SG&A expenses increased in 2018 due to higher compensation, product promotion, and legal costs S,G&A Expenses (in thousands) | Fiscal Year | S,G&A Expense | % of Total Revenue | | :---------- | :-------------: | :----------------: | | 2018 | $27,211 | 111.2% | | 2017 | $20,541 | 73.8% | | 2016 | $16,962 | 74.9% | - S,G&A expenses increased in 2018 compared to 2017, primarily due to higher compensation expenses (including $2.6 million in non-cash stock-based compensation), product promotion ($1.3 million), accrued contingent consideration ($0.8 million), and legal expenses and patent maintenance costs ($0.8 million)[196] Impairment of Goodwill and Intangibles Kopin recognized a goodwill impairment charge of $1.4 million in 2018 related to its NVIS and Kopin Software units Impairment of Goodwill (in thousands) | Fiscal Year | Impairment of Goodwill | | :---------- | :--------------------: | | 2018 | $1,417 | | 2017 | $600 | | 2016 | $0 | - During fiscal 2018, Kopin recognized a $1.4 million goodwill impairment charge related to its NVIS reporting unit and Kopin Software Ltd. reporting unit[198][351] - Intangible assets had no remaining useful life as of December 29, 2018, with $0.9 million in amortization expense recognized in 2018[352] Impairment of Assets Kopin recognized a $2.5 million asset impairment charge in 2018 for unutilized or unrecoverable equipment Impairment of Assets (in thousands) | Fiscal Year | Impairment of Assets | | :---------- | :------------------: | | 2018 | $2,527 | | 2017 | $0 | | 2016 | $0 | - During fiscal 2018, Kopin recognized a $2.5 million asset impairment charge related to equipment that was not currently being utilized or would not be utilized for its remaining useful life and was not recoverable[199][340] Total Other Income (Expense), Net Total other income increased in 2018, driven by a gain on equity investments and insurance proceeds Total Other Income (Expense), Net (in thousands) | Fiscal Year | Total Other Income (Expense), Net | | :---------- | :-------------------------------: | | 2018 | $4,178 | | 2017 | $1,955 | | 2016 | $571 | - In 2018, other income included a non-cash $2.8 million gain on equity investments and $1.0 million of insurance proceeds related to embezzlement at the Korean subsidiary[201] - Foreign currency transaction losses were $(0.2) million in 2018, compared to $(1.0) million in 2017[201] - In 2017, a non-cash $2.0 million gain on the fair value adjustment of a warrant contributed to other income[201][202] Tax benefit (provision) The 2018 tax provision was minimal, while 2017 saw a benefit from foreign tax reductions and NVIS acquisition Tax (Provision) Benefit (in thousands) | Fiscal Year | Tax (Provision) Benefit | | :---------- | :---------------------: | | 2018 | $(30) | | 2017 | $2,963 | | 2016 | $(3,130) | - The 2018 tax provision of less than $0.1 million was due to changes in estimates related to uncertain tax positions and deferred tax liabilities for the former Korean subsidiary[204] - The 2017 tax benefit of $3.0 million was driven by a reduction in foreign tax expense, recognition of deferred tax liabilities from the NVIS acquisition, an AMT credit, and a tax benefit related to the Kowon embezzlement loss[204] - Kopin expects movement in foreign withholding tax and a state tax provision in 2019[205] Net (income) loss attributable to noncontrolling interest This item represents the portion of results from majority-owned subsidiaries not owned by Kopin Net (income) loss attributable to noncontrolling interest (in thousands) | Fiscal Year | Net (income) loss attributable to noncontrolling interest | | :---------- | :-----------------------------------------------------: | | 2018 | $(51) | | 2017 | $140 | | 2016 | $(403) | - This represents the portion of results from majority-owned subsidiaries (Kowon, eMDT) not owned by Kopin (e.g., 93% of Kowon, 80% of eMDT as of Dec 29, 2018)[207] Liquidity and Capital Resources Kopin's liquidity declined due to negative operating cash flow, raising going concern doubts, with future capital commitments Cash & Working Capital (in millions) | Metric | Dec 29, 2018 | Dec 30, 2017 | | :------------------------------------------ | :----------: | :----------: | | Cash and cash equivalents and marketable securities | $37.2 | $68.8 | | Working capital | $39.0 | $67.6 | - The decline in cash and marketable securities was primarily due to $28.2 million in net cash used in operating activities in 2018, largely funding R&D for Wearable products[208][214] - Kopin expects to expend between $1.5 million and $2.0 million on capital expenditures over the next twelve months[212] - The company has an agreement to make a capital contribution of approximately $5.1 million (35.0 million Chinese Yuan Renminbi) through its Chinese subsidiary[213] - Recurring net losses and negative operating cash flows raise substantial doubt regarding Kopin's ability to continue as a going concern[214][273] Off-Balance Sheet Arrangements Kopin has no off-balance sheet arrangements to report - Kopin has no off-balance sheet arrangements[215] Seasonality Kopin's revenues have not shown a seasonal pattern in recent years, and none is anticipated for 2019 - Kopin's revenues have not followed a seasonal pattern for the past three years, and no seasonal trend is anticipated for 2019[216] Climate Change Kopin believes climate change regulations will not disproportionately affect its business compared to the U.S. industry - Kopin does not believe there is anything unique to its business that would result in climate change regulations having a disproportional effect compared to the overall U.S. industry[217] Inflation Kopin's operations have not been materially affected by inflation over the last three fiscal years - Kopin does not believe its operations have been materially affected by inflation in the last three fiscal years[219] Contractual Obligations Kopin's contractual obligations primarily consist of operating lease payments and a planned capital contribution to its Chinese subsidiary Contractual Payment Obligations (as of December 29, 2018, in thousands) | Period | Amount | | :---------------- | :------: | | Less than 1 year | $1,210 | | 1-3 Years | $2,649 | | 4-5 years | $201 | | More than 5 years | $0 | | Total Operating Leases | $4,060 | - Kopin has an agreement to make a capital contribution of approximately $5.1 million (35.0 million Chinese Yuan Renminbi) through its Chinese subsidiary's operations[220] Quantitative and Qualitative Disclosures About Market Risk Kopin manages interest rate risk on debt securities and is exposed to foreign currency fluctuations, but does not hedge these risks - Kopin invests excess cash in high-quality U.S. government, government-backed, and corporate debt instruments[221] - The company's portfolio of marketable debt securities is subject to interest rate risk, but the intent is to hold securities until maturity[221] - Kopin is exposed to foreign currency exchange rate fluctuations through its foreign subsidiaries' financial positions, non-U.S. dollar denominated cash flows, and remeasurement of U.S. dollars to functional currencies[221] - The company does not currently hedge its foreign currency exchange rate risk[221] - Kopin estimates that any market risk associated with its international operations or investments is unlikely to have a material adverse effect on its business, financial condition, or results of operation[221] Financial Statements and Supplementary Data Consolidated financial statements and supplementary data are included in the report from pages 39 through 69 - The financial statements required by this Item are included in this Report on pages 39 through 69[222] - Reference is made to Item 15 of this Report for additional information[222] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to Kopin Corporation - Not applicable[223] Controls and Procedures Management and independent auditors concluded that Kopin's disclosure controls and internal control over financial reporting were effective - The CEO and CFO evaluated and concluded that Kopin's disclosure controls and procedures were effective as of December 29, 2018[225] - Management assessed the effectiveness of internal control over financial reporting based on COSO criteria and concluded it was effective as of December 29, 2018[228] - Deloitte & Touche LLP, the independent registered public accounting firm, issued an unqualified attestation report on the Company's internal control over financial reporting[229][232] - There were no material changes in internal control over financial reporting during the fourth quarter of 2018[230] Other Information There is no other information to report under this item - None[239] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from Kopin's Proxy Statement - Information is incorporated by reference from the Proxy Statement relating to the 2019 Annual Meeting of Stockholders[240] - Kopin has a Code of Business Conduct and Ethics, corporate governance guidelines, whistleblower policy, and charters for its audit, compensation, and nominating and corporate governance committees, available on www.kopin.com[241](index=241&type=chunk)[242] Executive Compensation Information regarding executive compensation is incorporated by reference from Kopin's Proxy Statement - Information is incorporated by reference from the Proxy Statement[242] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the Proxy Statement, with additional details in Item 5 - Information is incorporated by reference from the Proxy Statement[243] - Refer also to the equity compensation plan information set forth in Part II Item 5 of this Annual Report on Form 10-K[243] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement - Information is incorporated by reference from the Proxy Statement[244] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from Kopin's Proxy Statement - Information is incorporated by reference from the Proxy Statement[245] Part IV Exhibits and Financial Statement Schedules This section lists consolidated financial statements and exhibits, with schedules omitted if not applicable or presented elsewhere - Consolidated Financial Statements (Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Loss, Stockholders' Equity, Cash Flows, and Notes) are included in the Report on pages 39 through 69[248] - Financial Statement Schedules have been omitted because the information required is not applicable or is shown in the accompanying Consolidated Financial Statements or notes thereto[248] - A list of exhibits filed as part of this Annual Report on Form 10-K is provided in the exhibit index[249] Form 10-K Summary This item is not applicable to Kopin Corporation - Not applicable[421] SIGNATURES The Annual Report on Form 10-K was signed on March 13, 2019, by key executives and directors of Kopin Corporation - The report was signed on March 13, 2019[425] - Key signatories include John C.C. Fan (Chairman of the Board, Chief Executive Officer, President and Director) and Richard A. Sneider (Treasurer and Chief Financial Officer)[425][426]